Neuberger Berman this week launched its third private equity-focused European Long Term Investment Fund for wealthy individuals.
The co-investment vehicle enables qualified individuals to invest in the asset class for a minimum of €25,000, according to a statement. Its predecessor closed on €210 million in November 2022.
This latest offering comes less than a week after BlackRock unveiled two ELTIFs targeting €1 billion – one allowing individual investors to back buyout, growth and venture capital for at least €30,000; the other a UN SDG-aligned private equity co-investment fund. Alternatives platform S64 is bringing to market a further five ELTIFs by the end of the year, and fundraising platform Moonfare has signalled its interest in entering the space.
BlackRock estimates that the ELTIF market reached €10 billion last year. It expects a further €100 billion in ELTIF assets under management over the next five years.
Schroders Capital, meanwhile, received approval last week from the UK’s Financial Conduct Authority to launch the first ever Long Term Asset Fund. The LTAF is the UK’s version of the ELTIF, and will allow defined contribution pension plans and retail investors to “invest efficiently in long-term, illiquid assets” via an open-ended vehicle.
Such fund structures have been slow to take off. The ELTIF regime received a lukewarm response when it was launched in 2015 due to constraints in the distribution process, and limitations on portfolio composition and eligible assets. The operational infrastructure was also seen as a barrier to many GPs. Meanwhile, the LTAF was slow to get off the ground after its launch in 2021, in part due to a charge cap restriction for performance fees.
Recent revisions to ELTIFs, known as ELTIF 2.0, may speed up their adoption. Significant changes in the text published by the Council of the EU in February include broadening the scope of investments, the universe of eligible investors and the ability to invest in funds of funds. As BlackRock’s global head of alternatives Edwin Conway told Private Equity International this week, “the acceptance of longer-dated investments with more limited liquidity absolutely shows it has a role [to play alongside] the typical closed-end fund”.
Nevertheless, questions remain. There have, for example, been “intense discussions” among industry practitioners and regulators about the “blurry” definitions of redemption periods, minimum hold periods for investors and the specific amount of capital (if any) to be invested in the European Union, among others, Jose Luis Gonzalez Pastor, a managing director in Neuberger Berman’s private equity team, tells PEI. ELTIF 2.0 also won’t apply until nine months after its publication for funds that are in the market.
“I don’t think it’s quite yet going to be the year of the ELTIFs, but I do think it’s going to be a record year for ELTIFs,” Gonzalez Pastor says, noting that managers are innovating on the product design, but aren’t sure whether they can take advantage of the new regulation until the clarifications are issued by the European Securities and Markets Authority.
Still, as the flurry of launches this year shows, these inclusive new fund formats are increasingly desirable to asset managers and their clients. As private equity looks for new ways to come down market and expand its capital bases, adoption of innovative structures is only likely to accelerate.